A statutory audit, a legally mandated examination of a company’s, nonprofit’s, or government’s financial statements and records, serves as the financial litmus test of an entity’s fiscal credibility. In this article, we will provide an overview of the requirements of a statutory audit so you understand what types of organizations undergo them and what to expect from audit services.
Statutory Audit Requirements
A statutory audit is a legally required examination of an entity or company’s financial records by an independent certified public accountant (CPA) or CPA firm, such as our team at Assurance Dimensions. This audit is to ensure the financial records are in accordance with the requirements of a government agency. This type of audit is required by statute, and the requirements can vary based on federal, state, or municipal jurisdiction. For an entity or company, rules established by the board of directors or leadership also apply as a statute.
What Entities Need A Statutory Audit?
Publicly traded companies, government agencies, banks, and other financial institutions are often subject to statutory audit requirements. For example, states may require municipalities to undergo statutory audits to show the transparency of public funds. The primary purpose of a statutory audit is to instill confidence in stakeholders, shareholders, donors, and creditors that the financial information they’re receiving is accurate and reliable. However, serious consequences will apply if there is inaccurate information in the audit report.
Some of the actions covered in a statutory audit include the following:
- Financial statement review: The audit thoroughly examines the financial statements, including the balance sheet, income statement, cash flows, and investment returns. Audited financial statements ensure that the accounting documents represent a fair view of the company’s financial standing and performance.
- Accounting compliance: An independent certified public accountant firm reviews the financial records to ensure compliance with statute-mandated accounting standards and tax regulations. It includes verifying the accuracy of financial reporting and ensuring proper disclosure of information.
- Testing internal controls: The statutory audit assesses the internal control systems, including policies, procedures, and processes for financial reporting, risk management, and asset safeguarding. This information helps measure if the entity can identify and mitigate risks effectively.
- Risk assessment: The audit evaluates risk management practices for an entity or company and how it mitigates those risks. It provides stakeholders with transparency of the financial records. Some of the potential risks an audit will identify include issues or weaknesses that will affect an entity’s reputation, compliance with laws or regulations that are not followed, errors in financial statements, disruptions in operations that affect productivity, and strained relationships with management.
An integral part of the statutory audit is the opinion letter prepared by the auditor. It is a crucial audit component as it is a written statement expressing the professional assessment of the financial position and performance. It covers statutorily mandated accounting standards, including accounting policies, disclosures, and any other relevant circumstances.
Hire a Trusted CPA Firm for Your Next Audit
While it may seem a daunting task, our team at Assurance Dimensions is well-versed and experienced in providing statutory audit services, such as single audits, PCAOB audits, as well as private company audits, and other legally required audits. Contact us today to request a quote.
